"Government Announces MDR Regime for High-Value UPI Transactions"
Merchant Discount Rate (MDR)
Fee a merchant pays to a bank for processing a digital payment, shared among banks and payment service providers.
Zero-MDR Policy
Government directive from January 2020 exempting UPI and RuPay debit card transactions from any merchant discount rate charge.
India's digital payments ecosystem was built on a deliberate policy of zero friction and zero cost. The Unified Payments Interface (UPI), developed by the National Payments Corporation of India (NPCI) and launched in 2016, created a real-time, interoperable payment rail connecting any bank account holder across institutions. Because UPI operates over bank accounts, the money transferred is a bank liability, unlike the Digital Rupee (e-₹), which is a direct sovereign liability of the Reserve Bank of India and functions more like digital cash. This distinction matters: UPI infrastructure costs fall on banks and payment service providers, not on the central bank, which is why the question of who pays for that infrastructure has always been a live policy issue.
The foundational legislation is the Payment and Settlement Systems Act, 2007, with the RBI as the designated regulator. To accelerate mass adoption, the government introduced a zero Merchant Discount Rate (MDR) policy in January 2020, eliminating the small percentage fee that banks and payment service providers had previously charged merchants for processing digital transactions. The Merchant Discount Rate is the charge a merchant pays to a bank for accepting payments through digital modes, it is shared between the acquiring bank, the issuing bank, and the payment service provider. For credit cards, MDR ranges from 1% to 3% of transaction value; for debit cards, it is up to 0.9%. UPI and RuPay debit cards were exempted from any such charge under Section 10A of the Payment and Settlement Systems Act, 2007, read with Section 269SU of the Income-tax Act, which applied to businesses with turnover above ₹50 crore. The government's own UPI application, BHIM (Bharat Interface for Money), operates on this same zero-cost rail and allows transfers to any UPI-enabled bank account.
The results were transformative. UPI grew into arguably the world's largest real-time retail payment system by volume, with more than 55 crore users and 703 entities, banks and payment service providers, facilitating transactions. UPI has also expanded internationally, with countries including the UAE, France, Sri Lanka, Bhutan, and Mauritius adopting it for merchant payments. However, the financial architecture underpinning this growth was structurally strained. The government disbursed approximately ₹8,730 crore over four years through an incentive scheme to compensate payment service providers, yet this covered only around 11 per cent of actual industry costs. The Standing Committee on Finance flagged this unsustainability in a March report, setting the stage for legislative intervention.
The Taxation and Other Laws (Amendment) Bill, 2026, passed by Parliament in the Monsoon session, amended Section 10A of the Payment and Settlement Systems Act, 2007 to remove the exemption from bank charges on electronic payments prescribed under Section 269SU of the Income-tax Act. This legislative change paved the way for an MDR to be levied on UPI and RuPay debit card transactions to large merchants, entities such as major e-commerce platforms with turnover above ₹50 crore.
The government has indicated that the MDR, if introduced, will apply only to a limited set of person-to-merchant (P2M) transactions above a specified threshold, currently reported at around ₹2,000, at a nominal rate estimated at around 0.4%. Person-to-person (P2P) transfers will remain free. The rationale has three stated pillars. First, exponential transaction volumes require continuous upgrades in cybersecurity, fraud prevention, and infrastructure. …
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news ?
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
With reference to digital payments, consider the following statements :
1.BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2.While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct?
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
Which one of the following best describes the legal basis for the zero-MDR policy on UPI transactions that was in place from January 2020?
With reference to the Merchant Discount Rate (MDR) applicable to different digital payment instruments in India, which one of the following is the correct ascending order of MDR rates?
With reference to the Merchant Discount Rate (MDR) on UPI transactions in India, consider the following statements:
1.UPI operated under a zero-MDR regime from January 2020 under Section 10A of the Payment and Settlement Systems Act, 2007.
2.The Taxation and Other Laws (Amendment) Bill, 2026 removed the exemption from MDR for UPI and RuPay debit card transactions to large merchants.
3.Person-to-person (P2P) UPI transfers above ₹2,000 will attract MDR under the proposed framework.
4.Transactions above ₹2,000 accounted for approximately two-thirds of UPI payments by value in 2025-26.
How many of the above statements are correct?
Consider the following pairs:
Payment Mode — MDR Rate (pre-2026 regime)
1.UPI (person-to-merchant) — Zero
2.RuPay debit card — Zero
3.Other debit cards — Up to 0.9%
4.Credit cards — 1% to 3%
How many of the above pairs are correctly matched?
With reference to the proposed MDR framework for UPI transactions announced in September 2026, consider the following statements:
1.The MDR will apply to all UPI transactions, including person-to-person transfers above ₹2,000.
2.Section 269SU of the Income-tax Act applied to every person having a business turnover of over ₹50 crore.
3.The BHIM app allows transfer of money to any UPI-enabled bank account, regardless of the bank.
Which of the statements given above is/are correct?
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